REFLECTIONS ON THE DOUBLE DIVIDEND DEBATE - THE IMPORTANCE OF INTEREST-GROUPS AND INFORMATION COSTS

We survey the history of carbon taxation, the range of market-based in struments (MBIs) of environmental control, and the state of the double dividend debate, in order to suggest directions for future research i nto MBIs. Returning MBI revenues as lower distortionary taxes rather t han as lump sums raises aggregate welfare, but we favour MBIs which ra ise little or no revenue, for reasons of political acceptability to in terest groups. At the same time, the overall case for any environmenta l improvement is weaker because of general equilibrium interactions wi th prior distortionary taxes. Research seems most necessary on quantif ying the efficiency benefits of market control of heterogeneous pollut ers, the benefits of environmental improvement, the tax interaction ef fect, and the various information costs of an MBI, all on a case-by-ca se basis for different pollutants and places.